It Will Take Political Will To Stabilize Market

October 24, 2005|By Franklin Sands

With predictions of extremely active hurricane seasons for the next decade or more, it appears Florida is going to be on the defensive against the onslaught of Mother Nature. Unfortunately, after just two active seasons, Florida's hurricane insurance industry is already in crisis.

Private insurers are seeking huge increases in their regular homeowners' insurance premiums and are dropping thousands of existing policy holders in high-risk areas, as they try to turn a profit and cover their losses from the hurricanes hitting our state just since last year. In order to make sure Floridians can protect their families and rebuild their hurricane-damaged property, it is essential that state leaders have the vision and the political will to make Florida's private insurance market healthy and stable.

Floridians need a business-savvy, commonsense plan that will increase efficiency, lower premiums and increase competition in Florida's private insurance market. The state Legislature should allow the state to assume the greatest risk -- hurricane damage -- instead of private insurance companies. Without the burden of covering high-risk damage, private insurance companies will compete to offer homeowners' policies to Floridians at the lowest possible cost. Because these risks are quantifiable and easily ratable, many new companies will immediately come into the Florida market, thereby reducing costs.

Currently, with no competition in the private hurricane insurance market and tremendous amounts of risk, private companies have little incentive to write hurricane insurance policies for Floridians.

Many private companies are simply pulling out of our insurance market, forcing homeowners to purchase insurance coverage from Citizens Property Insurance Corp., the state-run insurance company of last resort. These Floridians are subject to very high rates, which many Floridians cannot afford.

Add to this alleged worker fraud, cronyism and redundancy, and the stage is set for additional rate increases.

Not only is this situation not good for Floridians, it's also not good for Florida's economy. We need a strong, stable insurance market that can help Floridians rebuild their homes and recover their losses.

The Legislature should reform the Florida CAT Fund (Hurricane Catastrophe Trust Fund), which currently can only be accessed by private insurance companies after significant damage worth several billion dollars, into the Florida Hurricane Investment Fund.

This new fund will assume the risk for all hurricane windstorm policies, so every Florida homeowner can participate if they choose. The state will set affordable rates in an open process, but private insurance companies will write the policies. All this translates into lower premiums for Florida homeowners.

The economics of this plan are simple. The Florida Hurricane Investment Fund is a quasi-public, private entity that, unlike private insurance companies, won't need to make a profit or pay taxes. Additionally, this fund will not need to purchase reinsurance at a rate that private insurance companies do. Because these premiums will be no-load, they will result in lower premiums for consumers.

The fund will provide coverage statewide, balancing the liability and risk, which will allow the state the ability to quickly build reserves of billions of dollars for the purpose of paying claims. If ever the need arises, the fund will also be able to borrow funds from the federal government or bond in order to meet financial burdens.

One of the biggest benefits for Floridians, aside from lower premiums, is having only one insurance agent handle all your policies and claims. Since private insurance companies will be writing policies on behalf of the state's fund, Florida's consumers can continue to work with insurance agents they have developed relationships with. In instances of a loss, the homeowner will be working with the adjuster from the same private company that sold the policy. This will provide faster, better and friendlier service.

I believe in free enterprise, competition and less government involvement. Increasing competition, building efficiency and stimulating Florida's free insurance market can only lead to lower rates for consumers. As state lawmakers, it should be our first priority to resolve this critical issue, which impacts all of us.

State Rep. Franklin Sands is a member of the House Insurance Committee and is serving his first term representing District 98 in the Florida House of Representatives.